Applications of Cost-Volume Profit (CVP) Analysis

CVP relationships information which is useful to managers in a wide variety of planning decisions. Managers use this analytical technique to accomplish far more than just the determination of a break-even point. Example The following problems are based on the information given for company X: S.P (Sales Price) per unit = $25 Variable Cost per …

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Assumptions and Limitations underlying CVP Analysis

The assumptions imposed by accountants in calculating the C VP ratios also serve as the possible limitations of the technique. Most CVP analyses are based on the concept of static cost. All costs can be classified into two categories: fixed costs and variable costs. This assumption is not always true because certain costs like depreciation …

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Graphical representation of break-even analysis

Break-even chart Cost-Volume-Profit (or Break-Even) relationships can also be portrayed through the use of graphs. This method has the advantage of showing cost-volume-profit relationships over a range of sales. The graphic analysis permits managers to observe areas of profit or loss that would occur for a broad range of sales activity. The data from the …

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What is cost volume profit (CVP) analysis?

Definition Cost volume profit (CVP) analysis is a technique used to determine the effects of changes in an organization’s┬ásales volume on its costs, revenue and profit. CVP can also be used to analyze the effects on profit of changes in selling prices, costs, income tax rates and the organization’s mix of products or services. Explanation …

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Contribution margin ratio

Definition of Contribution Margin Ratio The total contribution margin divided by the total sales is equal to┬áContribution margin ratio. It is also known as the profit-volume ratio (p/v ratio). Explanation The Contribution Margin, as we know, is the amount of revenue in excess of variable costs. Contribution margin may be expressed on per unit basis …

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